Macroeconomic and Idiosynchartic Determinants of Non-Performing Loans in South Asian Countries: Evidence From Pakistani Banking Sector

  • Naseem Ashraf Student of Master of Business Administration at Lahore Garrison University Lahore, Pakistan
  • Qurrat Ul Ain Butt Lecturer at Lahore Garrison University Lahore, Pakistan
Keywords: Non performing loans, GDP growth rate, Inflation, Credit quality, Capital adequacy ratio, Bank size

Abstract

Using panel data approach in the Pakistan banking sector over the period 2010 to 2016, we examine the bank-specific and macroeconomic determinants of non-performing loans.  We use quantitative research design with OLS random effect model. Furthermore, we use various regression and correlation analysis in this study. We find that rise in capital adequacy ratio, bank size, GDP growth rate, and inflation, reduces the non-performing loans (NPL) ratio. Our results also show that a rise in loan loss provisions enhances the NPL ratio. Our results suggest that banks with poor asset-quality can sabotage the growth of fiscal as well as the economic sector. Outcomes of the study emphasis on the need to clear-out the NPLs to keep financial sector sound. NPLs can cause high loan loss provisions which affect the capitalization of banks that ultimately impacts fiscal and economic growth. Bank supervisory agencies should therefore pay attention to monitory and macroeconomic policies of the banks. This study examines the impact of idiosyncratic and macroeconomic determinants of non-performing loans on banks’ asset quality using recent data from 2010 to 2016, the time period when major banking sector reforms were launched.

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Published
2019-08-30
How to Cite
Ashraf, N., & Butt, Q. (2019). Macroeconomic and Idiosynchartic Determinants of Non-Performing Loans in South Asian Countries: Evidence From Pakistani Banking Sector. Journal of Finance and Accounting Research, 1(2), 48-80. Retrieved from https://ojs.umt.edu.pk/index.php/jfar/article/view/92
Section
Articles